South Africa Growth Outlook Poor as Confidence Low: SARB

June 28 (Bloomberg) -- South Africa’s economic growth
outlook is hampered by weakened investor confidence and plans by
the Federal Reserve to start reducing the scale of its support
for the U.S. economy, the Reserve Bank said.

“The economy is facing a difficult time as it is buffeted
by both global and domestic challenges,” the central bank said
in its annual report released in Pretoria today. “The outlook
is poor following the 0.9 percent annualized growth rate in the
first quarter.”

Mining strikes, Europe’s lower demand for exports and a
weaker rand have cut confidence and curbed economic growth. The
Reserve Bank lowered its growth forecast this year to 2.4
percent from 2.7 percent after Africa’s largest economy expanded
at the slowest pace since a 2009 recession in the first quarter.

Policy makers kept the benchmark interest rate at 5 percent
last month to help curb an inflation rate near the top of its 3
percent to 6 percent target band, while supporting economic
growth.

Inflation slowed for the first time in four months to 5.6
percent in May. The bank is forecasting the rate may temporarily
exceed 6 percent this quarter.

“We are delighted if you can have lower inflation,”
Governor Gill Marcus told reporters in Pretoria today. The data
is “very volatile” though, she said.

‘Markets Overshooting’

The rand has dropped 15 percent against the dollar this
year, the worst performance of 16 major currencies tracked by
Bloomberg. It slid 0.6 percent to 10.0053 per dollar by 2:43
p.m. in Johannesburg.

The U.S. Federal Reserve’s plan to reduce the amount of
bonds it purchases to support the economic recovery in the
economy has curbed investors’ appetite for emerging-market
assets.

“The markets have built up so much expectations, they are
overshooting,” Marcus said. “What you are seeing now is a
reaction that could be the next mutation that affects emerging
markets.”

Foreign investors sold a net 6.7 billion rand ($670
million) of bonds this month through June 26 after 4.71 billion
rand left the market in May, the first monthly outflow in a
year, according to data from the Johannesburg Stock Exchange.

The rand has also come under pressure from a widening
deficit on the current account, the broadest measure of trade in
goods and services, which reached 5.8 percent of gross domestic
product in the first quarter.

The trade gap narrowed to 11 billion rand in May from 15
billion rand in the previous month, the South African Revenue
Service said today.

“We question whether the gains will be sustained,” Razia
Khan, head of Africa economic research at Standard Chartered Plc
in London, said in an e-mailed note to clients. “South Africa
still needs to see much more export momentum for a meaningful
improvement in its trade profile.”